NSEL scam: SFIO wants Sebi action against errant brokers
02 Jan 2019
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The Serious Fraud Investigation Office (SFIO) probing the Rs5,600-crore NSEL payment scam that came to light in 2013, has concluded that the 148 broker-companies associated with the bourse have made “unlawful gains” and that their NBFC arms might have laundered money.
SFIO, which is engaged in detecting white-collar crimes/frauds, now wants market regulator Securities and Exchange Board of India (Sebi) to put the commodity brokerage houses, including the nine major ones, through the market regulator’s “fit and proper” test.
Sebi must examine if these commodity broker-companies or their promoters or directors need to be declared as ‘not fit and proper’, the SFIO has said.
The ministry of corporate affairs had in November 2016 ordered an SFIO probe into the alleged irregularities in the National Spot Exchange Ltd (NSEL) scam. In its report, which was submitted to the government recently, the SFIO has concluded that all the 148 member-brokers of NSEL had made “unlawful gains” while their clients suffered from “illegal losses”.
SFIO also noted that, the NBFC companies of the major brokers, who traded on the NSEL, might have laundered large amounts of money of questionable colour and source.
The SFIO has also suggested to the government to initiate the process of winding up the 148 brokerage houses for conducting business in a “fraudulent manner”.
The SFIO report noted that the brokers indulged in rampant client code modifications and presented the pair contracts to their clients as a lucrative investment opportunity. The brokerages kept their clients il-informed about the goings on in the commodities market, the SFIO report said.
The major brokers found to have made unlawful gains include Anand Rathi Commodities Ltd, Geofin Comtrade Ltd, India Infoline Commodities Ltd, Motilal Oswal Commodities Broker Pvt Ltd, Phillip Commodities India Pvt Ltd, India Nivesh Commodities Pvt Ltd, Integrated Commodity Traders Pvt Ltd, JM Financial Comtrade Ltd and Nirmal Bang Commodities Ltd, among othes.
The SFIO also noted that brokers they were found acting in concert with the NSEL in misselling their fraudulent financial products.
They also engaged in unethical and illegal practices like inducement, misrepresentation, making false assurances, alluring clients to earn brokerage and commission income, the SFIO said.
It may be recalled that SEBI had, in April 2017, issued a show- cause notice to India Infoline Commodities Ltd, Anand Rathi Commodities Ltd, Geofin Comtrade Ltd, Motilal Oswal Commodities Broker Private Ltd and Phillip Commodities India Pvt Ltd for declaring them ‘not fit and proper’ for their alleged role in the NSEL crisis.
The SFIO investigation team contacted 13,000 clients registered with 148 brokers and received responses from 7,217 clients. According to the findings for 55 per cent of the clients, the primary source of information about NSEL and NSEL trading was the brokers and the employees of the broking firms. They also confirmed that the brokers gave wide publicity to the NSEL and the arbitrage benefits on the exchange.
The SFIO probe also found that 83 per cent of the total clientèle was not aware of the nuances of commodity trading and the risk involved.
